Last Updated: April 13, 2020
The IRS has provided a limited deadline extension for Section 1031 deferred real property exchanges in response to the COVID-19 pandemic. Notice 2020-23, released by the IRS on April 9, 2020, generally provides taxpayers until July 15, 2020, to perform certain time-sensitive actions, including those listed in Rev. Proc. 2018-58, that were due to be performed between April 1, 2020, and July 15, 2020. The 45-day identification period and 180-day receipt period are time-sensitive actions covered by Rev. Proc. 2018-58 and Notice 2020-23.
Thus, for a real property deferred tax-free exchange currently in process, if the 45-day identification period or the 180-day receipt period expires on or after April 1, 2020, and before July 15, 2020, the taxpayer now has until July 15, 2020, to complete the identification or exchange, as applicable (assuming the due date of the taxpayer’s return, including extensions, is not before July 15, 2020).
For purposes of the like-kind exchange rules, replacement property is not treated as like-kind property unless the property is both identified and received within a specified period. The period for a taxpayer to identify replacement property in a 1031 exchange (the identification period) is 45 days after the date on which the taxpayer transfers the property relinquished in the exchange. The period for a taxpayer to receive replacement property in a 1031 exchange (the receipt period) is the earlier of (i) 180 days after the date on which the taxpayer transfers the property relinquished in the exchange and (ii) the due date (determined with regard to extension) for the transferor’s tax return for the tax year in which the transfer of the relinquished property occurs.
In the event of a federally declared disaster, the Treasury Department and the IRS may issue a news release or other guidance to postpone identification and/or receipt periods ending on or after the date of the federally declared disaster if (i) the relinquished property was transferred on or before the date of the federally declared disaster and (ii) (a) the taxpayer is an “affected taxpayer” as defined in the applicable IRS news release or other guidance announcing tax relief for the victims of the specific federally declared disaster (which news release or other guidance may be retroactive) or (b) the taxpayer has difficulty meeting the identification period or the receipt period because a party to the transaction is killed, injured or missing as a result of the federally declared disaster; a document prepared in connection with the exchange or relevant land record is destroyed, damaged or lost as a result of the federally declared disaster; a lender decides not to fund either permanently or temporarily a real estate closing due to the federally declared disaster or refuses to fund a loan to the taxpayer because insurance is not available due to the federally declared disaster; a title insurance company is not able to provide the required title insurance policy necessary to settle or close a real estate transaction due to the federally declared disaster; or a similar reason.
President Trump declared a national emergency concerning the COVID-19 outbreak on March 13, 2020. Notice 2020-23, released by the IRS on April 9, 2020, provides taxpayers with relief through limited postponement of the 45-day identification period and the 180-day receipt period.
How Manatt Can Help: Manatt’s tax practice regularly advises corporate, partnership and individual taxpayers on income tax matters arising from a variety of real estate transactions, including tax-deferred exchanges under IRC Section 1031 and corresponding provisions of California, New York and other state laws. Manatt’s tax practice is closely monitoring Treasury Department/IRS news releases and other guidance applicable to 1031 exchanges and will provide updates as they develop.
For More Information: Contact Jeffrey A. Mannisto, partner and leader, Manatt Tax, at jmannisto@manatt.com or 310.312.4212, or Robert Duran, partner, Manatt Tax, at rduran@manatt.com or 310.312.4274.